Finance HMWK

•  From the e-Activity, analyze the reasons why the short-term project that you have chosen might be ranked higher under the NPV criterion if the cost of capital is high, while the long-term project might be deemed better if the cost of capital is low. Determine whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two (2).
• * From the scenario, take a position for or against TFC’s decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two (2) capital budgeting techniques (e.g., NPV, IRR, Payback Period, etc.) that you used to arrive at your decision.

Peer REsponse 

From the scenario, I think that the best tools to use in order to determine if TFC should expand or not are the NPV and IRR methods. NPV is the difference between the present value of cash inflows and the present value of cash outflows. It provides a measurement of how much money the project will give to all shareholders of the business and is said to be the best tool to use when making the decision to move forward with a project. IRR is the interest rate at which the net present value of all cash flows from a project equal zero and is used to analyze if a project or an investment is attractive enough to pursue. IRR is the measurement of the rate of return a project but also presumes that the cash flows can be put back into the business at the IRR rate. The NPV and IRR show which projects to take on and what to expect from those projects. According to the scenario, TFC was using the 10.92% number as the discount rate and listed out a NPV of $23,164,711 and an IRR of 11.84%. The NPV is a positive number indicative of profit so, therefore, it makes sense for TFC to make the decision for the expansion.